Abu Dhabi: Sure, making money off financial markets is great. But for a growing number of investors globally, that’s not enough.
Enter impact investing.
Simon Smiles, chief investment officer — Ultra High Net Worth at UBS, the Swiss financial services company, said impact investments can range across different structures — from venture capital firms to private equities and private debt.
“The way we define impact investing is it’s private investments, there’s got to be an intention to have an impact, and you’ve got to verify the impact is happening. There’s also got to be a compelling return on your investment,” he said.
By impact, this could be anything from investing in a firm working on a cancer cure to a firm working to improve social inequality, and other investments that will make a social impact.
At UBS, impact investing is a growing focus, with an increasing number of clients interested in allocating assets to impact investing. Of the over 2 trillion Swiss francs in assets under management at UBS, around $3 billion (Dh11 billion) are allocated to impact investing and socially-responsible mandates, Smiles said. Two years ago, that figure was around $50 million.
“We think it’s a nascent area that shouldn’t be nascent, so there’s a lot of opportunity to actually reframe and grow. We think it fits very well with our clients’ appetites. They can deal with the illiquidity; it’s a private market or venture capital type of exposure, and they can benefit from the illiquidity premium associated with that. Frankly, there’s also a pragmatic angle, which is that we’ve got this growing income inequality globally. Within that context, being in a position to help deploy capital into attractive investments that also have a positive social impact is in our clients’ direct interest,” Smiles said.
And that’s a point he stressed out; impact investing is still very much about financial returns.
In one of UBS’ impact-investing funds, which is allocated to oncology research, net returns over 9-10 years are 20-25 per cent.
“We think impact investing, if done in the frame of investments that also have a meaningful social impact, will grow significantly. There are ample opportunities in this space, and what we’ve seen already is ample demand from our clients, and that’s very true in the Middle East as well,” Smiles said.
The focus on impact investing comes as clients expect more engagement from their banks and asset managers, and amid a change in views on wealth. A new report by UBS underlines a global consensus among millennials about wealth aspirations, with almost nine in 10 people surveyed saying they consider wealth to be more about experiences and impact than possessions or cash.
Smiles’ investment advice? Allocation of 2-4 per cent of assets to private markets and less liquid structures.
On a broader picture of all asset classes, the chief investment officer said, “Private markets and private equity offer some of the best expected risk-adjusted returns at this point in the cycle. Hedge funds are relatively attractive. Credit and equities are OK. High-grade bonds are less compelling, and commodities don’t, on a risk-adjusted basis, get in at all, so we have a zero allocation.”
